How Trump can get right with CEOs

President Trump’s embarrassing breach with the nation’s business leaders was a long time coming. Trump’s talk of reworking trade deals makes them nervous. Most of them disagree with his efforts to reduce immigration, because they need the workers. When Trump uttered incendiary remarks following the racially charged violence in Charlottesville, Virginia, the dam broke and a critical mass of CEOs finally started to quit Trump’s White House advisory councils — which Trump promptly shuttered.

But there will be a détente, because Trump and America’s CEOs still have one important thing in common: They all favor tax cuts, especially a reduction in the corporate rate, to bring it more in line with the lower tax rates in other developed countries. If anything, Trump’s need to sign a tax bill has intensified, since so many other parts of his agenda are going astray. And the departure of Stephen Bannon, Trump’s controversial chief strategist, may signal that Trump himself is moving a bit more toward the mainstream.

Trump has undoubtedly harmed his political standing with repeated blunders, such as his implied defense of white nationalists who marched in Charlottesville. Republican members of Congress are increasingly bold in criticizing Trump, with Sen. Bob Corker of Tennessee even questioning Trump’s “stability.” But Trump doesn’t need much political strength to give CEOs what they want. All he needs is a pen to sign a tax-cut bill, assuming Congress is able to produce one.

And the Republican Congress really needs to produce a tax-cut bill. This will be difficult for sure, since various GOP factions will insist on favored policies at odds with what other factions want. But tax cuts, unlike health reform, are a staple of the Republican playbook, and there are several detailed plans the GOP can use as a starting point.

“Republicans cannot run for reelection in 2018 having captured all of government, and tell their base ‘we’ve accomplished nothing,’” says Tom Block, Washington policy strategist for investing firm Fundstrat. “They’ve got to pass a tax bill before the primary season starts.” That means by spring of 2018.

Additional matters likely to create a stir

There’s other complicated business to get done first — raising the debt ceiling, always a contentious issue, and then passing a budget for fiscal year 2018, which begins October 1. Those efforts will produce fireworks and scary headlines, but deals are likely on both matters. Republican leaders in the House and Senate will then turn to tax cuts, perhaps using portions of a bill drafted last year by House Speaker Paul Ryan as a framework.

As a candidate, Trump called for sweeping changes that would lower tax rates for nearly everybody, reduce seven tax brackets to three and cut the corporate rate from 35% to 15%. Change of such magnitude almost certainly won’t happen. Instead, the corporate rate will probably fall to something like 25%, with a moderate reduction in corporate-tax loopholes, to appease Democrats whose support will probably be necessary to pass a bill. There could be modest cuts for middle-income taxpayers. Cuts for the wealthy are unlikely, since that would alienate Democrats.

Meanwhile, concern over the departure of top Trump aides like Gary Cohn, chairman of Trump’s National Economic Council, and Treasury Secretary Steve Mnuchin, are probably overblown. Both men are Jewish, and rumored to be distressed at Trump’s reluctance to condemn anti-Semitic protesters in Charlottesville. Rumors that Cohn was considering quitting led to a market selloff on August 17. Markets recovered somewhat when the White House officially batted down the rumor. Yet worries persist that Trump would come unhinged if Cohn and other moderate money men were to leave his side.

Markets aren’t that fragile. They might be overvalued, which is a different matter, but markets have recovered time and again from political scares, helped along by the fact that no president wants to trigger or oversee a market wipeout. It also helps that fundamentals such as corporate profits, employment and consumer spending are stable and in some cases strong. CEOs don’t have to like Trump, or even agree with him, to get what they want from his administration. All they have to do is let Trump be Trump.